08/11/22

AUSTRALIA: ATO eyes tech giants skimping on tax.

As published on ia.acs.org.au, Tuesday 8 November, 2022.

Global tech giants Apple and Microsoft paid corporate tax on just a fraction of their combined $17 billion earned in Australia in the 2020-21 financial year, according to data from the Australian Tax Office (ATO), as the government prepares to fight back against offshore tax minimisation schemes.

In 2020-21, Microsoft Pty Ltd took in $5 billion, of which only $336 million – or 6.7 per cent – was taxable profits. Apple likewise managed to reduce its taxable income to just 5.2 per cent of its total income of $11 billion.

For comparison, Google Australia’s taxable income was 21 per cent of its revenue ($1.4 billion), Amazon Web Services (AWS) reported 17 per cent of its $743 million total income was taxable profit, and Atlassian – which has notoriously reduced its tax obligations to zero in the past – reported 18 per cent of its $2.6 billion total revenue as taxable.

A report from the Centre for International Corporate Tax Accountability and Research (CICTAR) last month detailed Microsoft’s tax minimisation scheme in which subsidiaries, like the company’s Australian arm, pay its parents for the use of Microsoft’s intellectual property.

When Microsoft reports to its shareholders, it proudly points out a profit margin of over 30 per cent – but that profit shrinks to less than 7 per cent when reporting to the ATO.

Assistant Minister for Competition, Charities and Treasury, Dr Andrew Leigh, told Information Age the nature of a “weightless economy” – that is one in which value is created without goods physically moving from point A to point B – has made it harder to tax global companies for locally-earned profit.

“As we’ve moved from an agricultural economy to services production, it has opened the possibility for companies to artificially shift the location where value is added,” Dr Leigh said.

“We want to make sure companies aren’t using artificial contrivances to avoid paying their fair share of tax.”

In its October budget, the government outlined a trio of measures to help in the fight against global tax minimisation schemes.

The first is a tax transparency requirement mandating large multinationals, contractors bidding on tenders worth over $200,000, and all Australian public companies report where their subsidiaries and parent companies are paying tax.

Then there is a limit to the amount of debt-related deductions a company can make, down to 30 per cent of profits.

Finally, large multinationals like Microsoft will no longer be allowed to claim tax deductions for paying themselves for their own intellectual property and services when the payments go to a low- or no-tax jurisdiction like Ireland.

That measure is estimated to bring in an extra $250 million over the forward estimates which, in the grand scheme of things, isn’t much – in fact, it’s won’t even cover the bill for the ATO’s Tax Avoidance Taskforce which is getting an extra $1.1 billion in funding over the next four years.

For its part, the ATO is openly proud of Australia’s corporate tax compliance rate despite 32 per cent of companies paying zero tax in 2020-21.

“We pay close attention to companies not paying tax. We hold those companies that report continual year-on-year losses to an additional layer of scrutiny,” Deputy Commissioner Rebecca Saint said.

“While it’s true some large entities paid no income tax, we’re seeing through our justified trust program that there are high levels of compliance by these entities, and taking decisive action where there’s not."

Local tech darling Canva was one of those 32 per cent of companies that paid zero tax on its $395 million revenue in 2020-21.

A Canva spokesperson said the company “invests heavily in R&D and growth” which helped account for the expenses that reduced its taxable income down to just $714,000.

“Our final income tax result was nil after utilising available tax offsets,” the spokesperson said.

“This continued investment in innovation allows us to create local jobs while contributing to the strength of our economy more broadly – as a result, we employ more than 2,000 Australians, with 687 hired this year alone.”

As much as tech companies enjoy minimising tax payments, they will never hold a candle to the fossil fuel giants which, as Michael West Media pointed out last week, paid a grand total of just $30 in corporate tax on a combined income of nearly $150 billion in 2020-21.